A project requires an initial investment of $2,400,000 depreciated straight-line to $0 in 10 years. The...
A project requires an initial investment of $2,400,000 depreciated straight-line to $0 in 10 years. The investment is expected to generate annual sales of $700,000 with annual costs of $450,000 for 20 years. Assume a tax rate of 30% and a discount rate of 10%. What is the NPV of the project? No excel spreadsheet please.
Homework Answers
| Annual Operating Cashflows: | 1-10 yrs | 11-20 yrs | |||
| Annual sales | 700000 | 700000 | |||
| Less: Cost | 450000 | 450000 | |||
| Less: Depreciation (2400000/10) | 240000 | 0 | |||
| Before tax Incomee | 10000 | 250000 | |||
| Less: Tax @ 30% | 3000 | 75000 | |||
| After tax income | 7000 | 175000 | |||
| Add: Depreciation | 240000 | 0 | |||
| Annual cashflows | 247000 | 175000 | |||
| Multiply: Annuity PVF at 10% | 6.14456 | 2.36899 | |||
| Present value of cash flows | 1517706 | 414573.3 | 1932280 | ||
| Less: Investment | -2400000 | ||||
| NPV | -467720 | ||||
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